China Plan Envisions Farm Business Transformation

China has unveiled a plan to turn its rural people into a legion of modern farmers. The State Council released "Ideas on Accelerating Formation of a Policy System to Nurture New-type Agricultural Businesses" on May 31, 2017. The document aims to create a prosperous countryside by nurturing diverse types of market-oriented moderate scale farms, cooperatives, and agribusinesses in place of the fragmented, small-scale subsistence farms that have covered China's rural hinterland for centuries.

The document calls for setting up a policy system to nurture new-type farm businesses by 2020 that will extend credit to farmers, open diverse market channels, provide training, recruit university graduates to serve as village officials, give farms and agribusinesses favorable tax treatment, and escalate spending on farm aid that complies with WTO rules.

China's Minister of Agriculture Han Changfu called the new-type farmer initiative an important document that helps rural people, improves rural people, and enriches rural people. Minister of Agriculture Han Changfu said new-type agricultural operators engaged in agricultural production and services are now in a key growth period, and they have a great need for guidance. Nationally there are 870,000 family farms, 1,888,000 farmer cooperatives, 386,000 agricultural industrialized business organizations (including 129,000 dragon head enterprises), and 1,150,000 agricultural socialized service organizations.

[By comparison, China's village collectives have nearly 250 million families with tiny land-holdings. China's National Bureau of Statistics reports 267 million rural people are engaged in nonfarm employment (either as migrants or near their homes). The rural population is estimated at 603 million and employment in "primary industry" is 219 million.]

No peasant will left behind. The plan emphasizes that China's modern agriculture will be built on the foundation of the family-based rural land contracting system adopted by most of the countryside during 1978-84, and it promises to retain rural households as the core of the new farming operations. Cooperatives and alliances will link farmers together; and service organizations and businesses will provide mechanical, pest control, technical advisory services, and agribusiness will link farmers with markets.

The plan adopts a market-driven approach that combines industrial policy and marketing of branded products with poverty alleviation, but it insists that government policy guidance is necessary. The plan also calls for "green" production, environmental protection, resource conservation and sustainable development.

A survey of 2615 family farms, farmer cooperatives, and agribusinesses conducted by Renmin University last year provided a more concrete picture of new-type ag business operators. The survey found that new-type business operators have a much higher level of education than traditional farmers, are younger, and more often men. They have larger scale operations, are more technically proficient, better financed, and utilize more social resources.

The survey evaluated farm businesses not just on their own success but also on their ability to lead and "pull along" rural people. Agribusinesses were most influential in providing loan guarantees, information, marketing, and employment. Half of farmer cooperatives paid dividends and shared profits with members, but the average coop had only 42.5 members. Family farms had little influence on their neighbors.

Officials hope new-type businesses will provide financing for small farms since rural commercial banks only give about 7 percent of their loans to farmers. The Renmin University study found that about a fifth of new-type farm businesses provided financial services to other farmers. About 16 percent made loans to farmers, and 17 percent guaranteed loans for other farmers. About half of agribusiness enterprises provide financing arrangements for purchases of inputs like livestock, feed, seed, or fertilizer. Many cooperatives had established internal mutual aid credit funds.

The survey found about a fourth of new-type farm businesses provide information to other farmers. Much of this appears to be feed and veterinary medicine companies providing farmers with information about their products and some technical advice. However, the report concluded that the coverage of rural households by such information dissemination is still small, and noted that information is seldom updated.

The survey authors estimated that new-type farmers influence only about 8 percent of the rural population and concluded that there is a lot of room for improvement in the leadership role of new-type ag business operators. Survey authors ascertained that the slowing Chinese economy had stifled progress on developing the rural leadership role of new-type farm business operations.

While the new-type farm business idea sounds innovative and visionary, it is basically a warmed-over re-launch of past efforts. A dragon head enterprise initiative launched in the 1990s had a similar objective of leading hordes of small farmers into big markets. Chinese leaders have reported huge numbers of cooperatives formed since a new cooperative law ten years ago, but enthusiasm among farmers seems to be lukewarm.

The plan to transform farming maintains the focus on profits and markets that has worked so effectively to enrich Chinese peasants since the 1980s. However, retaining collective land ownership, limits on size and scope of farmer organizations to keep their power in check, and monopolizing banking hamstrings new-type business operators, necessitating the big subsidy build-up envisioned to facilitate the transformation.